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Day Late, a Dollar Short

Bob Moriarty
President: 321gold
November 3rd, 2011

The most embarrassing thing in life is to get caught out at the airport when your ship finally comes in. It happened to one of our advertisers recently. I can't remember who it was that said, "When the eraser on your pencil keeps running out before the lead does, God is trying to tell you something." Whoever it was had a good point.

I wrote about CBM Asia (TCF-V) for the first time about three years ago just as the GFC was gaining steam. The price of the stock was $.46 but I cautioned against buying it at those prices. They had months more work to do before they would actually see progress.

By the time I wrote about them the second time, the price of natural gas had dropped and TCF was selling for half of what it had been selling for in December of 2008. You could buy it cheap for $.23 and I said so.

I wrote about them for the third time in September of 2009 just as they were about to spud their first hole. The shares were $.40 apiece and those who bought at $.23 were sitting in high cotton. According to the company, results would be out in a week after they drilled. It was just another promise too good to be true. I wish they would break the habit of promising and not delivering. They are beating their shareholders to death.

They finally drilled the first hole after many months of little being accomplished. They may as well have just stayed in the office in Jakarta and shot themselves in the foot. The drillers thought they were drilling for coal, not for CBM. They brought the core up and set it aside. CMB Asia didn't have a geo on site and it never occurred to anyone to bag the core. By the time they tested the core, all the gas was gone. I was shocked.

I wrote about them yet again last May with the shares still cheap at $.445. According to them, they had the results from the three holes that they had completed and would have a 51-101 resource out in 60 days. For two and a half years, patient shareholders have been waiting for some progress and it always seemed that the company would take one step forward and two steps back. The 60 days promised turned magically into 180 days and by now they had pissed off all the shareholders.

CBM Asia released the 51-101 results on November 2, Wednesday and the stock promptly dropped. The results were skewed by what I will call the Dumbshit Drill hole where no one thought to bag the core.

CBM Asia had to release the results of that first hole. The results showed there was no gas in the core after sitting for two weeks and the company doing the 51-101 had to factor in the Dumbshit Drill hole into their numbers.

Other than that, Mrs. Lincoln, how was the play?

The company doing the 51-101 showed three different sets of number for the resource. There was a low estimate of 319 Bcf, a best estimate of 1062 Bcf and a high estimate of 2056 Bcf.

CBM Asia has 12% of the project with an option for another 12% for a total of 24%. Now to understand what those numbers may mean, we need to look at what people get for a Bcf in other parts of the world. You should know from the gitgo that Indonesia is getting an incredible $11.50 a Mcf at present while natural gas in the US today is $3.75.

My sources in Texas and Calgary say that the market price for a Bcf of natural gas is $2 million. So if you took the low number from the 51-101 and used 319 Bcf, 24% of that would translate into a market value of $153 million or about $2 a share. If you used 24% of the best estimate, you would come up with a market value of $509 million using comparisons from Canada and Texas. If you were a wild optimist and used the 2056 Bcf High Estimate, you would have a value of $986 million.

Bear in mind the company totally skewed the numbers by drilling and announcing a dud hole. Obviously the numbers should be a lot higher but at this point only God knows and She isn't saying.

In my view, if the company had drilled three holes, and had bothered to bag the core so they would have some stupid wild-assed guess as to how much gas was in the coal and had completed the 51-101 in some kind of reasonable time frame a year after my first piece, I think the stock would be worth and would be selling for $5-$10 a share. I think that if they had done everything right and it took two years to drill three holes and do a 51-101 they would be selling for $3-$5 a share. But they have screwed the pooch so many times that when they actually get around to releasing pretty good numbers, their shareholders are so bored all they can do is hit the sell button.

I think with these numbers and no more, the stock should be $1 to $2 a share right now even with all the stupidity. If they would get drills cranking on the other 95% of the properties the company controls and actually bag the core and do a resource sometime this century the company could rocket a lot higher. If the company got the stock price above $.90 for over 20 days, it would accelerate the warrants and that would bring in about $10 million in cash. The company is worth ever bit of that and a lot more but shareholders don't know it.

I suspect a lot of shareholders are burned out and want to do nothing more than dump their shares at any price. I think that's a mistake, if management will get their act together, this stock would be a lot higher. We are going to have to churn through millions of shares from shareholders bored to death and management is going to have to learn to stop making promises they can't meet.

And face it guys, three holes in three years is absurd. It's time to get cranking.

CBM Asia is an advertiser, I own a lot of shares and have held them for a long long time. I am biased but I'm also pretty pissed. Shareholders have been severely abused and that needs to stop.

CBM Asia Development
TCF-V $.31 (Nov 2, 2011)
CBMDF-PK 70.6 million shares
CBM Asia website

Bob Moriarty
President: 321gold
November 3rd, 2011

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